Glossary
Rho
The option Greek measuring how much an option’s price changes for a one-percentage-point move in interest rates.
On this page
Rho is the option Greek that measures sensitivity to interest rates: the estimated change in an option's price for a one-percentage-point change in the risk-free rate, with everything else held constant. It is usually the least watched of the major Greeks, because rates move slowly and the effect on short-dated options is tiny. For long-dated options, and in periods when rates move quickly, it becomes worth knowing.
How it works
Higher interest rates make calls slightly more valuable and puts slightly less valuable. The intuition: buying a call instead of the stock lets you keep cash in the bank until expiration, and that cash earns more when rates are higher. A put, by contrast, delays receiving the sale proceeds, which costs more when rates are high.
- Calls have positive rho.
- Puts have negative rho.
- Rho grows with time to expiration and with how deep in the money the option is.
When it matters
- LEAPS and long-dated options. Options with a year or more to expiration carry meaningful rho.
- Rate shocks. In 2022, when US short-term rates rose by more than four percentage points in a year, rho effects on long-dated positions were noticeable.
- Large books. Market makers and funds holding many contracts hedge rho even when it is small per contract.
For most short-term traders, Delta, Theta and Vega dominate the price changes they see. Rho's effect on a 30-day option is usually smaller than a typical bid-ask spread.